"Do You Believe In Miracles": IceCap Asset Management Monthly Letter

The odds of winning were slim and none. Avoiding embarrassment was the real objective, but then something happened. Momentum changed and the rag-tag bunch of American college hockey players shocked not only the Soviets and their 1980 Big Red Machine, but the entire sports World.

When seemingly faced with the impossible, America always perseveres and finds a way to win. After winning the global economic game for the better part of 100 years, America is once again on the ropes and no one is giving her any hopes at winning, or even surviving for that matter.

America’s debt levels are disastrous. It has no money to pay future pensions and healthcare. Economic growth is anemic. Meanwhile, more Americans than at any other time in history reply upon food stamps. And to make matters even more dire, it is only the decision to print trillions of new dollar bills that is holding everything together.

Just as America’s rock is about to hit its American bottom, you must ask “Do you believe in miracles”? And, the short answer is – yes.

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Unfortunately, there’s also some bad news. This upward surge in USD does not reflect a surging US economy or an improving fiscal condition. To see the canary in the American coal mine, look no further than Chart 1.

Ultimately, once the effects of money printing and the poor handling of debt levels has played itself out in Europe, Britain and Japan, the US too will bare the brunt of its similar strategies. For now however, the US is last in the long line of financial heart ache.

To fully understand how the global debt crisis plays out however, investors must be willing to step outside of their own domestic economy and financial markets, and view the World from an independent perspective. Unfortunately in financial analysis, all too often investors become one or two dimensional at best. To really up your investment game, you need to broaden your perspective and see through the daily grind of financial pomp and circumstance.

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While we disagree with recent conjecture that central banks will one day soon put an end to their money printing ways, one thing is certain – the effect on emerging markets will not be kind. While much discussion is focused on US domestic financial markets, the American withdrawal of liquidity will have a severe effect on emerging markets.

To further expand your financial horizons, one must also be contemplating the effect of Japan’s newly embraced money printing programs. Whereas America has committed to printing $2.67 billion a day to help create a few jobs, the Japanese have taken money printing to an entirely new level. Their program has one goal – significantly decrease the value of the Japanese Yen.

Think South Korea and other Asian exporting countries are happy with Japan’s attempt to drastically cut the value of the Yen? Not a chance. You can be certain that as the Yen continues to weaken, South Korea and others will also attempt to debase their currencies. And just to be clear, there is nothing like a good old currency crisis to help nudge money to safer areas.

Understanding how these dynamics play out is the key to correctly forecasting the long-term direction of financial markets and why ultimately the US Dollar will strengthen relative to the Euro, Yen and British Pound.

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Saddest thing is the asshole politicians in Washington, and the lame stream media will praise that they are doing the right thing... just look how low are bond yields are and how high are stock market is.

"America always perseveres and finds a way to win" - that's hopium defined right there. "We perservered againt the odds at one instnance in history, therefore we will continue to perservere against all odds in perpetuity."

- It claims that because Europe, UK, Japan are a mess ... the US dollar and treasuries will boom, as the least dirty shirt in the closet

No mention at all of how the US dollar is quickly losing its role as the reserve currency, with half the world setting up direct currency swap lines bypassing the dollar ... with corresponding rejection of the increasingly toxic US Treasuries

In other words missing the big elephant in the room, the theme that is the core of Jim Willie's fire and brimstone rants ... the dollar as reserve currency is ending, the petro-dollar is ending, and with that the US Treasury bond tower is in danger of collapse too ...

It's not enough to just say 'the euro is a mess, so the dollar and Treasuries will be great!'

The piece reads as if it was written by someone for whom English is a second language.

Interesting point about the petrodollar system, but part of the reason it is collapsing is that we are importing much less oil and so there are fewer dollars sent abroad to be recycled. Smaller supply of dollars abroad should be dollar positive. Set that against the attempt by some to trade without going through dollars which would be dollar negative. Someone big like China and Australia going outside the dollar system will ultimately result in war. Just ask Saddam.

Perhaps a more appropriate quote would be Winston Chruchill "You can always count on Americans to do the right thing....after they've tried everything else." I'm afraid that this time, "everything else" will include printing and denial until the dollar collapses....maybe then a majority will come to their senses. I doubt there's much chance it will happen before then.

Hey, US unfunded liabilties are $123.46 trillion today and not $60 trillion as you state. They grow at $6.9 trillion a year.

Even Richard Fisher of the Dallas Fed had them at nearly $100 trillion in 2008.

Kotlikoff has them at $222 trillion.

Where do you get $60 trillion?

Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.

Well, they aren't really entitlements; they're just sort of vague commitments to maybe take care of people or something like that, so we don't have to show them on the balance sheet as unfunded liabilities. The debt is only $12 Trillion ... I know you think it is $16T, but we also don't have to count the other $4T that we borrowed from the Trust Funds.

Even the $12 trillion will only need to be repaid in newly-printed and inflated "dollars". Health care will be down-graded and rationed. Social security eligibility will be phased-up to age seventy-two. The CPI will replace steak with rice & beans: it's healthier. No one will need to work. The PRC will handle our defence and government.

They could fund SS by simply increasing the salary cap and we could cover more people for half the money by passing single payer. But the wealthy cant have everything if they don't take everything. The unfunded liabilities argument is complete horseshit. Like you say, if I put down 10% on a home mortgage, does that mean I've created an unfunded liability?

Yes, the US government won't default on their bond obligations - at least, not nominally. So QE will continue.

But no, they won't default on SS, because there'd be a revolt - too many of the voting sheep rely on these handouts, and I don't see the majoritarian puppet show being suspended anytime soon - there are simply too many guns in private hands out there. If they suspend 'democracy', then there WILL be a revolution. So the farce must be maintained, the sheep must continue to believe that 'they' are the government.

So here's what I think will happen. Barring some technological game-changer, they will continue to deficit finance their obligations. More capital misallocation will occur. We'll get poorer. Inflation will start ticking up. They'll keep changing the definition of steak until it means catfood, to hide the rise from CPI calculations, but eventually no one will be fooled anymore and they will start taking more of our property as collateral in an attempt to sterilise the inflationary effects of the ballooning money supply. This probably won't be in the form fof outright confiscation but via taxation.

This is why I think owning large amounts of land or any other easily tracked asset is going to be very costly. It's too easy for the government to steal.

I, for one, do believe in miracles. How else do you explain the US economy having such a charmed existence despite its incredible debt, incredible deficits, incredible wars, incedible obesity, incredible unfunded liabilities, incredible wealth disparities?

Yes, it is a true miracle that not only the USA is still standing, but a miracle that the rest of the world continues to allow itself to be fed useless dollars as part of this process of propping up the unsustainable imbalances we are witnessing.

Brothers, hop into the Nikkei... they are doing what Ben did to us for four years... transferring wealth from the middle class citizens to the stockholders... free money... take advantage of it... and yes the yen will depreciate, cutting into real gains, but even if denominated in dollars you will still make money becuase the boyz will frontrun the BOJ and juice the Nikkei way before the yen depreciation affects prices. My Japan fund is running like a scalded dog... fuck the average Jap... all your savings are belong to me, Nipponese motherfuckers... payback for Pearl Harbor.

Good article. If correct, it looks like we will never be able to short stocks again and we have to continue to be patient with gold, silver and the miners. Not sure if it will play out the way they envision. What happens if our society continues to implode at the rate it is currently? Do investors really want to put money in a dying capitalist environment? Are those on food stamps and disability going to tell the govt. "please, no more checks, it is time for me to do my share for America". I think not. We have an aging population, including me, no manufacturing basis anymore and companies have learned how to make more profits with less full time employees with 0 benefits. That is not going to change. And we have idiots running the country. Tough case for our "Hockey Team". Do agree we will be the last ship to sink, but the Icebergs are out there. Be careful.

But I am not changing anything. Like what I got and somehow just cannot force myself to buy AMZN NFLX of CMG. Call me cautious.

Corporations are only solvent from a specific point of view of not counting certain tings, double counting others, subtracting losses, adding 30 year gains from bonds righ now, pre booking sales, and many other accounting tricks that make it look like a collection of fucking retards with no skills are running a multi billion dollar enterprise.

The economy is now 100% perception. If a company is percieved to be solvent, this perception will allow it to borrow indefinitely.

Do you really believe Herbalife is a profitable corporation? Do you really believe they sell 1/100th of what they claim? I've done the numbers and it is impossible.

LuLu Lemon? Somehow selling that amount of product through just over 100 stores, not possible. Kevin Plank at Under Armour must not have a very good CFO. UA is in thousands of doors with 10x the invnetory Lulu can create, yet Lulu's market cap is double Under Armour. Total bullshit.

The #1 volume product checked out at Dick's Sporting Goods in 2010 was worth $20 million retail for the year. That is a lot of ground for the rest of the products to make up to bring in a couple billion in revenue. It really isn't possible. Again the revenue is all fake. The number reflects booking all shipped inventory as sold. Actually booking about half the sale, then booking the rest if the product actually does sell to a consumer.

Rome kept bouncing around for a long time before it finally died. Who knows if there will be a mass awakening back to freedom or a transition from Huxley to Orwell. America was once strong, she might die hard, humans are fickle, anything can happen.

The next president will try and convert America to the religion of The Force after watching Star Wars VII in a desperate bid to remain relevant to the younger generation. Like Constatine he will try to unite the two competing visions of America and keep the republic together for a short while longer.

Tyler's thanks for posting this. I come here day to day to read and learn and discuss from my small point of view. I do disagree with alot of the commenter's tonight. This can will be kicked and kicked for another decade or two in the USA. I will most likely be dead before it breaks down in the USA. I happen to love this country after living over half of my life in other countries including Europe. I am an ole fart as my son calls me!

I happen to agree with Ice Caps current view. I am sure to be blasted by some here but that is ok. I was never taught economics and look at this from a world view. We must or we fail to see whats coming but come to the shore of the USA it will. Right now I am trying to make a profit so I can live comfortably when I retire in two months without ever having to rely on handouts. The game is going to go on for a long time. You might as well profit from it and do your best to get tangible assets. You may want to buy some land if you can and have a good aquifer on it. Believe me with some of you doomers here you should have already owned it and the mineral rights to the land. Trust me being able to grow something goes a long way in the game. I do buy PM's but prefer my land. I will grow food you will give all the gold later to feed your self and friends. I am sure some will come here and tel me gun bullets and good survivor skills. Sure to a point I agree.

Friends and family will keep you going. Why be so gloomy all the time all we know this shit will fail. Enjoy the time you have and hedge accordingly. I guess it was time to get some of you out of your ruts. Some of you are very smart people and dwelling in this shit will not help you. Some of you are relishing a apocoliptic moment but trust me from experience it is deadly. Go search some places in Africa and you will find people eating people because they have no food even though they have ariable lands and water. This is not going to be all the fun and games some profess here. I have seen it first hand and hope (ahh the word alot of you hate) this never happens to any of you to be honest.

You have obviously been reading ZH for a while and you are right. The situation is ireversible and politicians and banksters know it. Kicking the can is the only thing they can do. Most of us do wish for the system to collapse even though the pain will be severe and the reason is that we want those responsible to be strung-up high before they die a natural death.

Sometimes doing the right thing and punishing those who have sold their souls to the devil and have no human compassion is more important for the future of humanity despite our own pain and suffering. The reason we were living in a free country until recently is because others did the fighting for us.

It is now our time to fight for the freedom of our sons and daughters. Bring it on.

I think it's a mistake to believe currency debasement is intended to help anyone but the financial elites who get first, if not sole, use of the newly created money. In theory, a cheaper dollar should increase exports, but we don't manufacture anything so lets not get fooled by these lying fucks.

As a matter of fact the dollar is collapsing and Japan and Europe are not able to prevent this.

While the crisis in Europe reach epic proportions Euor still 1.30 (from 2002 up 50% against the dollar)

Japan devaluation is epic but JPY/USD will rebound shocking fast.

ICECAP knows The depositors in Europe are no players in forex.

In the end it is the economics that will prevail and not the FED.The "current account" and "external debt" that is negative for years in the UK and the US will destroy these countries and their currency.

It must be realy shocking for ICECAP and dollar lovers to see how fast the Euro and the Yen will rebound despite the relative chaos in these areas. This means wathever happens in these countries people do not come to the dollar anymore.

ICECAP dollar talk remind me to the dot.com bubble. We all knew it was complete nonsense but as long as things keep going we came up with al kind of grab to convince each other.

After reading ICECAP I am suddenly convinced, dollar collapse is immanent and can start every moment.

My scenario:

Commodities are bound to collapse especially oil price. With it the US oil industry will be destroyed overnight. From there oil prices will rice really fast in dollar terms. This will be the moment people start to pay 8 dollar a gallon and hyperinflation becomes a fact.